The massive share selloff that started in China on Monday and then infected global markets, saw Apple (AAPL, +0.60%/0 drop as much as 13% in early trading while believers in the old adage ‘fortune favors the brave’ took advantage of the low price and bought the company's stock on the cheap.
The reality about the purchase of Apple shares at the low prices prevailing on Monday is that these purchases were not necessarily speculative trades to make a quick buck on the market swing. Apple stock bought at the prices we saw on Monday could represent a value purchase to initiate a long term position in a good stock available at a discount price as a result of market conditions.
The intrinsic value of Apple was indicated on Monday, when, despite the selloff and carnage in the market and its rapid loss of 13% in value, Apple stocks climbed back to only record a 2.5% decline for the day. Priced at a shade over $103, compared to their 52 week high of $135 and with 41 analysts polled by FT.com having a price target of $150, Apple stock can be bought with confidence as the price starts moving higher.
According to columnist Jeff Reeves, there are 5 reasons why Apple is an attractive long-term investment.
Overrated investor fears that Apple will be unable to repeat the impressive growth of 112% in sales reported in its fiscal third quarter, when sales increased from $6.23 billion in 2014 to $13.23 billion, ignore the fact that operating income from China increased at the even higher rate of 147%. Fears about the state of the Chinese economy and the effect that might have on sales in the region given Apple’s increasing reliance on that market have been allayed by a mid-quarter advisory from the company. CEO Tim Cook told investment guru Jim Cramer that iPhone activations in China have “actually accelerated” and that “China represents an unprecedented opportunity over the long term.”
Market negativity about iPhone sales seems to have become entrenched with some analysts saying the Q3 sales figures can’t be repeated as they were the result of pent up demand for the new iPhone 6 and 6 Plus as they hit the market. Notwithstanding that, at current prices with a P/E ratio of around 11 and a forward price-to-sales ratio of around 2.5, the negatives have already clearly been priced in by investors.
The propensity of Apple to do stock buybacks is an indication that the company cares about its shareholders. In the fiscal third quarter, the company paid out $13.8 billion in buybacks and dividends which provides an excellent return on capital for investors.
Apple is sitting on a pile of $200 billion in cash and investments that form almost a third of its market value, and this stockpile is still growing. The selloff on Monday that resulted in Apple stock only shedding 2.5% in value is another sign of the company's underlying strength.
Reeves says, “Apple with a bulletproof balance sheet is a great place to stash your cash. Apple will continue to prove that its stock will remain a safe haven regardless of Wall Street’s gyrations.”
MT4 Chart: Apple